It is the return which a shareholder earns on every share held. It is denoted as:
Net income after tax available for equity share holders/ Outstanding equity shares throughout the year
Net income available for equity share holders is founded out by deducting preference dividend from the Profit after Tax (PAT)
The outstanding equity shares throughout the year are the weighted average of the shares outstanding during the year and the treasury stock is deducted from it.
Refer to the example below to calculate EPS
Cost of goods sold (COGS)
Profit before Taxes
Profit after taxes
Net income available to common shareholders
No of outstanding shares
The EPS should be as high as possible such that the dividends can be paid to the equity shareholders out of the EPS (or) the earnings can be reinvested for the future growth.
Higher the EPS, higher would be the market value as market value is generally denoted as EPS* P/V. Here if P/V is fixed, then increase in share price would be because of high EPS.
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